Commodity product spreads in crypto refer to trading strategies involving the simultaneous purchase and sale of two distinct but related digital asset derivative products. These products are often based on an underlying cryptocurrency, with differences arising from maturity dates, delivery locations, or specific contract terms. The strategy targets price discrepancies between these related instruments.
Mechanism
This mechanism requires a trading system capable of executing synchronized long and short positions across different derivative contracts. It involves the careful selection of correlated assets and the real-time monitoring of their price differentials. The system computes profit or loss based on the net movement of the spread, not the absolute price of individual components.
Methodology
The methodology behind commodity product spreads centers on relative value arbitrage or hedging. Traders identify historical price relationships and deviations from these norms, seeking to profit from their convergence. Risk management is critical, focusing on volatility of the spread rather than individual asset volatility, and requires precise capital allocation.
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